IBM CEO Admits Execution Shortfall Amid Shift in Customer Spending
IBM's CEO Arvind Krishna admitted that the company fell short on execution in its second quarter, but expressed confidence in its business and ability to grow. The shortfall was attributed to a sudden shift in customer spending from specific parts of IBM's software portfolio to AI-focused hardware components outside of the vendor's traditional offerings.
The shift, which occurred at the end of June, moved towards servers, storage, and memory purchases to secure supply-constrained infrastructure ahead of expected price increases. This led to IBM failing to close a double-digit number of large deals on the timelines they expected, accounting for the majority of the shortfall.
Krishna stated that about one-third of the shifted deals had since closed, which he saw as a good indication that it was deferral and not destruction. He also touted plans to increase the use of AI to help scale software development, bolster IBM's sales and marketing efforts, and optimize its supply chain.
The company is accelerating changes to its go-to-market model to expand coverage across thousands of additional clients where its portfolio is highly relevant and where it sees significant wallet share opportunities. Krishna pointed to IBM's recent software-focused acquisitions, including Red Hat, HashiCorp, and Confluent, which power a majority of IBM's high-margin subscription-based recurring software revenues.